Uranium in for a long road to recovery: Morgan Stanley

Further delays to Cameco’s giant Cigar Lake uranium mine will ease some of the pressure on depressed yellowcake prices, but Morgan Stanley says more mine delays are needed if uranium is to recover from near seven-year lows.

Since the Fukushima nuclear disaster in 2011, uranium has slumped 50 per cent to a spot price around $US35 per pound as Japan shut down almost all of its 50-odd nuclear power stations, tipping the uranium market into oversupply.

Putting the Japan shutdown into context, the land of the rising sun accounted for 12 per cent of global demand before the disaster.

On Monday, Canadian-based Cameco – which produces about 14 per cent of global uranium supply – said problems with the 97 per cent complete Cigar Lake mine meant the operation would not begin producing until early next year.

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Cameco had expected to produce 300,000 pounds of milled uranium from the site this year, with first production initially expected in 2008.

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Morgan Stanley analyst Joel Crane said delays to the mammoth Cigar Lake project had catalysed a bull run in uranium in 2006-2007.

However Mr Crane thinks there will be no rebound this time, with the battered uranium market in for a long road to recovery.

“We believe this event serves as a timely reminder, as prices drift to a seven-year low, that bringing new uranium supply to market to fill the impending gap remains a significant challenge," Mr Crane said in a research note.

“The shutdown of nuclear capacity in Japan . . . postponed that supply gap, probably by a matter of years. However, with prices sustaining well below incentive levels, we expect more news of delayed operations, which, in our view, is the only means to higher prices."

Local operators have been smashed by languishing yellowcake prices.

Two weeks ago, Australian-listed
­Paladin Energy
reported a full-year loss of $US420.9 million in fiscal 2013, despite a 20 per cent increase in production to 8.2 million pounds and a focus on cost-cutting.

The embattled company was also forced to shelve plans for a sell-down in its Langer Heinrich mine in Namibia, although chief executive
John Borshoff
said the sale process was back in action at the full-year result.

Morgan Stanley is forecasting uranium to remain in oversupply in 2013 and 2014, even though new supply amounts to only 1 per cent and 4 per cent of global production in each of those respective years.

In 2015 and 2016, the broker predicts the market balance will tip into under-supply, which could see prices recover.